Tired and worried at the lack of loan growth, public sector banks have begun cutting rates. But for the moment, they are being disguised as temporary discounts for the festive season.

But, the biggest retail lender ICICI is not ready to jump into the rate-cut bandwagon, yet, reports CNBC-TV18. Diwali is more than two months away, but public sector banks have begun trying to instil the festive spirit and induce people to take loans.

Bank of Baroda has cut its home loan rate for Rs20 lakh loan from 10.75 per cent to 10.25 per cent for a tenure of 20 years. Similailry, a host of large PSU banks including State Bank of India, Union Bank and PNB, are all looking at cutting home loan rates, by nearly half a percentage point.

Currently SBI charges a floating interest rate of 11.25 per cent for a 20 year loan, Union Bank charges 10.75 per cent and Punjab National Bank 9.5 per cent for a 20 year loan.

Though festive season is the excuse, sources say the real reason for the cut is that bankers are worried about home loans growing at only 3 to 5 per cent, since April this year.

Home loan sanctions have dropped dramatically this year as compared to 5 years of consistent 30 per cent growth in the home loan market. Bankers say the market has shrunk thanks to high interest rates, as also due to higher property prices.

However, the largest lender of home loans, ICICI Bank is currently not looking at slashing rates. According to sources in the bank, their cost of funds is still high and hence there is, as of now, no scope to offer lower rates even temporarily for the festive season.

This festive season can be crucial for both bankers and developers, if demand doesn''t return both sectors may be headed for a slowdown.

also see : General reports on Banks & Financial Institutions